Mortgage Crisis results in More Vacant Risks
Bulletin – Thursday, May 15, 2008
The mortgage crisis has had a serious impact on the financial services industry and has forced bankruptcies and foreclosures all across America in record numbers. Foreclosed properties in the community also drive down property values leading to lower assessments. The crisis is not only affecting homeowners, but also affecting real estate investors who default on their loans. Borrowers are finding it advantageous to walk away from their properties due to the negative equity, as the market value of their property continues to drop. Many are electing foreclosure and filing for bankruptcy.
In the past, most vacancies were due to an unexpected move, a transition between tenants, a renovation, or an estate situation. Today, large portions of vacant properties are in foreclosure. Surplus lines carriers historically take higher risks than the standard market companies and typically write vacant homes or commercial properties.
Insurers are taking a closer look at foreclosed vacant properties. Most will not insure properties that are in the process of a foreclosure. A few will look at the properties once the bankruptcy as been finalized. Some will consider while under Chapter 11 (reorganization).
When looking to insure a vacant property, find out as much information as possible. Why did it become vacant? Is it under foreclosure or is the owner filing for bankruptcy? If so, what chapter? Are there tax liens on the property? Has the building been secured? Were there any evictions? Have any suspicious fires or known arsons taken place in the area? Has there been an increase in crime or vandalism? Due to the recent rise in the price of copper, higher incidences of theft in vacant homes have become apparent. Be sure to take a look at the surrounding properties and their condition.
An insurance underwriter will less likely decline or increase the premium, if enough information is obtained on the vacant properties to find it insurable during these unpredictable times.